Astonishing insights: emerging market debt spreads throughout the pandemic

Mariya Gubareva · Zaghum Umar · Tatiana V. Sokolova · Xuan Vinh Vo

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Credit Risk and Financial Regulations Global Financial Crisis and Policies COVID-19 Pandemic Impacts

Abstract

We investigate how Covid-19 affects the emerging market (EM) bonds by analysing, on a standalone basis, investment grade (IG) and high yield (HY) debt per type of issuer. We document evidence that the option-adjusted spreads (OAS) of the IG and HY financials have recovered to the pre-Covid levels by the end of year 2020, while for the HY sovereigns and corporates the OAS remain twice as wide as before the pandemic. The weight of the liquidity component in the OAS for the IG sovereigns has climbed to astonishing 45%. Our results are potentially useful for investors, traders, risk managers and regulators.

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2020Financial markets under the global pandemic of COVID-19 2020The impact of COVID-19 on emerging stock markets 2020The impact of COVID-19 on stock markets 2020A time–frequency analysis of the impact of the Covid-19 induced panic on the volatility of currency and cryptocurrency markets 2021COVID–19 media coverage and ESG leader indices 2012Copula model dependency between oil prices and stock markets: Evidence from China and Vietnam 2020When Selling Becomes Viral: Disruptions in Debt Markets in the COVID-19 Crisis and the Fed’s Response 2021The impact of Covid-19 on commodity markets volatility: Analyzing time-frequency relations between commodity prices and coronavirus panic levels

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